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Contact: Patti Lorenzen
Media Representative
612-204-5261
Patti.Lorenzen@mpls.frb.org

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Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast

MINNEAPOLIS, February 22, 2012—Federal Reserve Bank of Minneapolis

Minnesota Banking Conditions Improved in 2011; Continued Improvement Expected in 2012

2011 Performance

Minnesota banks got healthier across a variety of key measures in 2011, based on year-end data reported by the 367 commercial banks in the state. However, the rate of improvement varied across measures. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Minnesota banks got stronger, overall, in 2011. Banks in Minnesota saw particular improvement in asset quality, especially during the fourth quarter; profitability improved, but to a lesser degree, as did loan growth, which remains negative.”

Overall asset quality showed strong improvement in 2011. The level of problem loans compared with the resources banks have to cover loan losses improved by more than four percentage points, besting the national average at less than 13.5 percent as of year-end. The quality of commercial real estate loans held by Minnesota banks also improved in 2011, roughly matching the national average in the fourth quarter.

Profitability improved, but not to the same extent. The median return on average assets for both Minnesota and the nation remains at about 0.8 percent (sluggish by historical standards). Liquidity and capital both improved over the year, though neither has been a particular challenge for most banks, even in the depths of the recent crisis.

The year-over-year change in the amount of outstanding loans improved by the end of the year (particularly in the fourth quarter). The rate of change, however, remained negative by year-end 2011. The national median was negative as well, although Minnesota’s was worse at -2.5 percent.

The data for Minnesota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

2012 Forecast

The condition of the median Minnesota bank is expected to improve in 2012, according to Feldman. “Even with improvement, the performance of banks will vary across condition metrics. By year-end 2012, asset quality may start to approach precrisis levels, while loan growth may not.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 13.2 percent to between 13.25 percent and 9.75 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 0.77 percent to between 0.825 percent and 1.075 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in Minnesota was -2.7 percent at year-end 2011. The forecast has it improving to between -2 percent and 2 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

Data for Minnesota and the nation [pdf]

Additional data on the characteristics of banks in the region and definitions and explanations of these data [pdf]

More details on 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

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Montana Banking Conditions Improve in 2011; Continued Improvement Expected in 2012

2011 Performance

Year-end financial reports filed by the 70 commercial banks in Montana show that median bank health improved over 2011 in the state across a variety of metrics, particularly with regard to asset quality. However, this improvement comes off of deterioration in conditions, leaving conditions still worse than their precrisis levels across many categories. Performance at Montana banks continues to lag the nation as well.

According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “For the median Montana-based bank, capital, asset quality, earnings, liquidity and growth rates all improved from 2010, often outpacing nationwide rates of improvement. However, Montana experienced worse asset quality at the depths of the crisis and continues to experience negative loan growth. Continued improvement is necessary to return Montana banks to their precrisis performance.”

In the state, overall asset quality improved considerably from last year, with the amount of loans that aren’t making on-time payments dropping from more than 23 percent to less than 17 percent of the value of resources banks have to cover potential losses. That improvement is twice as great as the national average. But the ratio is still somewhat higher than in the rest of the country, particularly for commercial real estate loans (at about 9 percent in Montana, the ratio is twice the national median).

Measures of earnings improved over 2011 in the state and in the rest of the country. Montana banks are just about matching national rates of return. But these levels remain far off precrisis levels.

Some key indicators of capital and liquidity also improved in Montana throughout the year and surpass national averages.

The year-over-year growth in the amount of outstanding loans improved a bit, but remains at -3 percent for the median Montana bank. While that’s roughly a percentage point better than the growth a year earlier, it’s considerably below the national average of -0.75 percent.

The data for Montana and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

2012 Forecast

The condition of the median Montana bank is expected to improve in 2012, according to Feldman. “Even with improvement, the performance of banks will vary across condition metrics. By year-end 2012, asset quality may start to approach precrisis levels, while loan growth may not.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 16.6 percent to between 15.75 percent and 12.25 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 0.77 percent to between 0.825 percent and 1.075 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in Montana was -2.9 percent at year-end 2011. The forecast has it improving to between -2 percent and 2 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

Data for Montana and the nation [pdf]

Additional data on the characteristics of banks in the region and definitions and explanations of these data [pdf]

More details on 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

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North Dakota Banking Conditions Improved in 2011, Remaining Far Better Than the Nation; Continued Improvement Expected in 2012

2011 Performance

North Dakota banks improved on a variety of measures over the course of 2011. North Dakota banks compare very favorably to banks in the national as a whole, which were hit much harder by the financial crisis. North Dakota banks are more profitable, have maintained much lower levels of problem credits and are growing loans at a brisk rate compared with national figures. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota banking conditions stand out in the Upper Midwest and compared with the nation. They have improved, but without experiencing the deeper struggles that banks in other regions suffered in recent years. The continued growth in loan portfolios and the rate of improvement in other measures are promising for the health of banks in the state.”

Asset quality improved in 2011 at the median North Dakota bank, often better than historic norms. Overall measures of loan quality and for important loan types, such as agricultural, are at 10-year lows. Problem loans are twice as high at the median bank in the nation compared with the median North Dakota bank.

Measures of earnings also increased slightly for North Dakota banks and continue to outpace national returns. The return on average assets for the median North Dakota bank was a little over 1 percent compared with a national measure of 0.75 percent. These returns are getting closer to, but remain off of, precrisis levels.

While the year-over-year growth in the amount of outstanding loans improved a bit nationwide, it remains negative at the median. The North Dakota median bank grew its loan portfolio by 4.5 percent.
The data for North Dakota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

2012 Forecast

The condition of the median North Dakota bank is expected to continue improving in 2012, according to Feldman. “With further improvement, some condition metrics will approach or continue to exceed precrisis levels.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 6.8 percent to between 4.25 percent and 7.75 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 1.08 percent to between 1.10 percent and 1.30 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in North Dakota was 4.5 percent at year-end 2011. The forecast has it improving to between 4.5 percent and 8.5 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

Data for North Dakota and the nation [pdf]

Additional data on the characteristics of banks in the region and definitions and explanations of these data [pdf]

More details on 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

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South Dakota Banking Conditions Improved in 2011; Continued Improvement Expected in 2012

2011 Performance

South Dakota banks improved performance over 2011, based on Dec. 31, 2011, reports filed by the 75 commercial banks in the state. Performance improved across many metrics, with asset quality in particular showing strong gains. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banks showed strong improvement and compare favorably with the rest of the nation, although some measures have not yet returned to precrisis levels. Asset quality is particularly good in South Dakota.”

The state average ratio of problem loans to the resources banks have to cover losses is roughly one-third the national average as of year-end and fell by nearly half over the course of 2011. Overall asset quality and asset quality for important types of loans, such as agricultural, are at the strongest point in the decade.

With better loan performance, South Dakota banks have also improved profitability. The amount of provisions for anticipated losses has come down considerably in South Dakota. However, profitability remains off of precrisis levels.

Compared with year-end 2010, South Dakota’s banks also strengthened their capital position by more than half of one percentage point.

Loan growth is positive in South Dakota, compared with negative levels in the nation and improved over the year. However, loan growth remains at weak levels for South Dakota banks relative to their performance over the past decade.

The data for South Dakota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

2012 Forecast

The condition of the median South Dakota bank is expected to improve in 2012, according to Feldman. “With additional improvement, the performance of banks will approach or continue to exceed precrisis levels.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 4.6 percent to between 2.5 percent and 6 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 1.11 percent to between 1.15 percent and 1.35 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in South Dakota was 0.7 percent at year-end 2011. The forecast has it improving to between 1 percent and 5 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

Data for South Dakota and the nation [pdf]

Additional data on the characteristics of banks in the region and definitions and explanations of these data [pdf]

More details on 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

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